The Court of Justice of the European Union (CJEU) has ruled that contractual arrangements are not decisive and may be disregarded when they do not reflect economic and commercial reality in terms of VAT application.
In the recent case of Newey, trading as Ocean Finance v HMRC [C-653/11], Newey was a loan broker in the UK with VAT exempt services.
As a result, he could not recover VAT on advertising services supplied to him.
Newey set up a company, Alabaster Ltd in Jersey, and gave it the right to use the name Ocean Finance. Any loans processed by UK employees were then approved by Alabaster, which then entered into a contract for the...